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Microsoft Corporation Essay, Research Paper
TABLE OF CONTENTS
MICROSOFT HISTORY 1
EARLY INFLUENCES 2
FIRST BUSINESS VENTURE 3
EDUCATION ATTEMPT 3
THE MOTIVATIONAL SIDE OF FEAR 4
A JAPANESE CONNECTION 5
IBM INFLUENCE 5
SURVIVAL OF THE FITTEST 6
A CRUCIAL DEAL 6
COMPETITION ERRORS 7
BIRTH OF WINDOWS 7
MISSION STATEMENT AND ANALYSIS 8
INDUSTRY AND COMPETITVE ANALYSIS 9
DOMINANT ECONOMIC CHARACTERISTICS 9
Market Differentiation 9
Pace of technological change 10
Advances to the Printed Word 11
DRIVING FORCES 12
The Internet 13
The Information Highway 14
KEY SUCESS FACTORS 14
Historians categorize blocks of time with the discovery of certain raw materials
that humans utilized. The Bronze Age and the Iron Age were two periods in human
history that proved through the discovery of artifacts that humans learned to
harness these raw materials ingeniously. The Industrial Revolution of the late
nineteenth century brought the discoveries of the Bronze and Iron Ages to new
heights, and the advent of the locomotive, automobiles, cargo ships and
airplanes were the most evident by-products of such raw materials. Use of these
by-products from the earth’s raw materials dramatically changed the world of
business and trade. With the subsequent invention of wire communications (i.e.,
tapping out Morse code and speaking over telephone lines), business and trade
grew exponentially. Wireless communications via the inventions of radio,
television, and motion pictures contributed greatly to the advances of the
Industrial Revolution. The need to find better ways of doing business to keep
the marketplace fresh and innovative has driven the human race toward the brink
of a new eraCthe Information Age. Unlike more tangible qualities of prior ages,
the Information Age offers less defined qualities. At the heart of this new age
is the advent of the personal home computer. Pumping life into this otherwise
material home appliance is software that incorporates the necessary commands to
access information stored within the computer’s memory. The company that
offered the world its first software manufacturing company was Microsoft
Corporation (MSFT on the NASDAQ exchange). At the helm of this young, innovative
company are William Gates and Paul Allen, a pair of former high school chums who
envisioned a world of home computer technology years before such a dream became
even remotely possible.
Their story begins at Lakeside High, a private high school in Seattle,
Washington. The Mothers’ Club at Lakeside decided to purchase a computer
terminal for the kids with proceeds from bake sales and rummage sales. Students
at Lakeside became enthralled with this new toy. True to their innate curiosity,
Gates and Allen began to dabble farther into the workings of the computer; Gates,
for example, wrote his first computer program at the age of thirteenCa version
of Tic, Tac, Toe. Because the computer terminal was so slow, one game of Tic,
Tac, Toe took up most of a lunch break; if played on paper, a full 30 seconds
might have been required. Despite the simplicity of the program, it spawned the
creative genius in both young men to tackle more challenging programs in the
years ahead. Because the Mothers’ Club was unable to afford continued use of
computer time at $40 per hour, they decided to make it students’ responsibility
to purchase their own computer time. Most students complied by getting jobs
outside school. Gates and Allen became programmers in the summers for
compensation of computer time and $5000 in cash. In his 1995 book The Road
Ahead, Gates describes the mainframe computers of the early >70’s as A. . .
temperamental monsters that resided in climate-controlled cocoons . . .
connected by phone lines to clackety teletype terminals. . . .@ (11) He went
on to explain that a personal home computer called the DPD-8 was actually
available from Digital Equipment Corporation. According to Gates it was A. . .
an $18,000 personal computer which occupied a rack two feet square and six feet
high and had about as much computing capacity as a wristwatch does today . . .
Despite its limitations, it inspired us to indulge in the dream that one day
millions of individuals could possess their own computers.@ (11-12)
In the summer of 1973, Paul Allen, who knew more about computer hardware than
Bill Gates, shared an article with Gates buried on page 143 in Electronics
Magazine. The article described the invention of the 8008 micro-processor chip
by a young company called Intel. Paul was surprised to receive the technical
manual for the chip in the mail simply upon request. Immediately, he went to
work analyzing its capabilities. Due to the lack of transistors, the 8008 chip
was very limited in its use, but Allen discovered despite the limitations, the
chip was good for repetitive tasks and mathematical data.
First Business Venture
When Paul Allen entered college at Pullman, Washington, a town on the east side
of the state, sixteen-year-old Bill Gates traveled frequently by bus to visit
him. On these long trips across the state, Gates wrote a program that
facilitated the reading of traffic information gathered by municipalities
through a device set up on the side of certain intersections. A long, rubber
tube stretched across the road from one of these devices, and each time a
vehicle ran over the tube a punch was made in the roll of paper within the
device. People deciphered this crude data by visually inspecting the punch
holes and annotating the results. Gates’ program relieved humans from such a
tedious task, using the technology of the 8008 chip instead. With this program
Gates and Allen launched their first company, Traf-O-Data. The two programmers
were full of enthusiasm for the success of their new company; most communities,
however, were reluctant to purchase from two kids: consequently, their fledgling
company enjoyedonly marginal sales.
Gates attended Harvard College in 1973 while Allen secured a job in Boston,
Massachusetts as a programmer for Honeywell. In 1974 Intel announced the advent
of the 8080 chip that boasted 2,700 more tran-sistors than its predecessor.
Because of the disappointment they experienced in the hardware side of computing
through dismal success in Traf-O-Data, Gates and Allen focused on new
opportunities in the software side of computers. With a vision of millions of
computers owned by individuals, the pair banked on competition between Japanese
and American companies for control of the computer hardware market. With this
in mind, and with the introduction of the 8080 microprocessor chip (and
inevitable successors to the chip), Gates and Allen determined that their future
lay in developing software for these computers.
The Motivational Side of Fear
During a cold, New England morning outside a newsstand in Harvard Square during
one of his frequent visits to Bill Gates, Paul Allen picked up a copy of the
January issue of Popular Electronics magazine. The cover photo pictured a small
computer kit called the Altair 8800. It sold for a mere $397, and had 4,000
characters of memory . Panic struck Gates: A>Oh no! It’s happening without us!
People are going to go write real software for this chip.’ I was sure it would
happen sooner than later, and I wanted to be involved form the beginning. The
chance to get in on the first stages of the PC revolution seemed the opportunity
of a lifetime, and I seized it.@ (Gates, 16).
Driven by fear of someone writing software for the Altair 8800 personal computer
before his own software was complete, Gates scrambled feverishly in his Harvard
College dormitory forgoing a decent night’s rest. Five weeks later, a version
of BASIC became the impetus for Athe world’s first microcomputer software
company . . . In time we named it >Microsoft.’@ (Gates, 17)
In the spring of 1975, Allen quit his job with Honeywell; Gates decided to take
an indefinite leave of absence from college (never intending to forgo a degree).
Both young men planned to dive into the world of the computer software business
at its very beginning stages. Allen was twenty-two years young and Gates was
only nineteen. They set up operations in Albuquerque, New Mexico because the
city was home to MITS, creator of the first inexpensive personal computer to be
offered to the general pubicCthe Altair 8800 .
Microsoft provided BASIC language because it allowed a format for computer users
to write their own programs instead of having to rely on scarce, packaged
software. Immediately, the MITS Altair 8800 faced strong competition from
computer makers such as Apple, Commodore, and Radio Shack who entered the
personal computer market in 1977. The strategy at Microsoft was to convince
computer manufacturers to buy licenses to Abundle@ Microsoft software with their
computers. Royalties would then be paid to Microsoft on each computer sale.
Aside from the antics of early software piraters and lack of government laws
preventing such activities, this strategy of selling licenses for the use of
their software worked well for Microsoft.
A Japanese Connection
By 1979 half of Microsoft’s business came from Japan. This was due in large
part to Asweat equity@ of one man in particular. His name is Kazuhito (Kay)
Nishi. Kay telephoned Gates in 1978 after discovering Microsoft in a newspaper
article. Both Gates and Nishi were only twenty-two at the time and shared many
similarities despite cultural and language differences. They met shortly after
the phone call at an electronics con-vention in southern California. Without
attorneys, they signed a 12 page contract which gave Nishi exclusive
distribution rights to Microsoft’s BASIC language in East Asia. Eventually,
their original expectation of $15 million was realized ten-fold through sales as
a result of that contract.
Microsoft moved from Albuquerque, New Mexico to its present home in Redmond,
Washington in 1979 with most of its twelve employees. According to Gates, the
mission of Microsoft was Ato write and supply software for most personal
computers without getting directly involved in making or selling computer
hardware.@ (44) The programming team adapted programs to each machine and were
Avery responsive to all the hardware manufacturers . . . we wanted choosing
Microsoft software to be a no brainer . . . along the way, Microsoft BASIC
became an industry standard.,@ Gates was quoted. (44)
By 1980, International Business Machines (IBM) enjoyed an 80% market share of
large computer hardware, but only marginal success with the smaller personal
computer (PC) market. The Apple II computer appeared poised to takle the
business market, thanks in part to a popular spreadsheet program called VisiCalc.
Based on Apple’s success, IBM decided to enter the PC market. In the summer of
1980, two emissaries from IBM met with Gates to discuss IBM’s plans for a full-
market assault, with components already available off-the-shelf. IBM’s plan was
to utilize Intel’s microprocessor chip and to use Microsoft’s programming
expertise, rather than create its own software. As a result of this meeting,
Microsoft hired Tim Paterson, from a Seattle, Washington firm, who became
responsible for creating the Disc Operating System (DOS) for IBM compatible
Survival of the Fittest
The first IBM PCs hit the market in August of 1981 with a choice of three
operating systems: Microsoft’s DOS, UCSD-Pascal, and CP/M86. Gates realized
that only one operating system could survive, just as only one video cassette
recorder survived their market previously (VHS beat out Beta Max). Gates
developed a three-part plan to come out on top of the competition: < make
Microsoft DOS the best product of the three < help other software companies
write MS-DOS based software < ensure MS-DOS to be inexpensive.
A Crucial Deal
With these objectives in mind, Gates offered IBM an attractive deal. Microsoft
would allow IBM to use DOS (called IBM- or PC-DOS to distinguish itself from
the nearly identical MS-DOS) for a low one-time fee for as many PC’s IBM could
sell. This deal gave IBM the incentive to push DOS, rather than the other two
oper-ating systems, whose manufacturers received royalties for each PC sale with
their respective operating systems installed. Hence, IBM sold UCSD Pascal P-
system for $450 and CP/M-86 for $175 while DOS was offered at only $60.
Gates’s strategy worked as he stated:
AOur goal was not to make money directly from IBM, but to profit from licensing
MS-DOS to computer companies that wanted to offer machines more or less
compatible with the IBM PC. IBM could use our software for free, but it did not
have an exclusive license or control of future enhancements. This put Microsoft
in the business of licensing a software platform to the PC industry. AConsumers
bought the IBM PC with confidence . . each new customer . . . added to the IBM
PC’s strength as a potential de facto standard for the industry. . . . A. . .
the availability of software and hardware add-ons sold PCs at a far greater rate
than IBM had antici-patedCby a factor of millions,@ which meant Abillions of
dollars for IBM.@ (Gates, 49-50)
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